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Refinancing your home loan to pay for a holiday

Rates and Fees verified correct on February 24th, 2017

How to refinance your mortgage for travel

Home Loan Tip

While funding a holiday may not be the most traditional motivation to refinance your mortgage, some borrowers consider refinancing at a lower rate to help manage their holiday debt.

If you're planning to take a personal loan to cover the expense of a holiday, one option is to refinance your home loan at a lower rate and use the cost-savings to help cover the cost of a trip. However, this should be carefully considered because failing to plan how you'll repay the holiday debt after it's rolled into your mortgage can increase your interest charges and repayments.

Keep in mind that adding holiday or car debt to your mortgage can put your home at increased risk and it can also harm your refinance application.

Let's look at the below example to understand the risks of refinancing to help manage travel debt.

Dan and Emma’s trip to ThailandRefinancing for holiday travel case study

Dan and Emma have a $400,000 home loan and through their efforts over the last five years, they now owe $360,000. With an interest rate of 5.5%, their repayments are $2,456.35 per month.

Dan and Emma haven't been overseas for years, so they decide to book an extended trip to Thailand for $20,000. With a lack of savings to fund the trip, they're thinking about refinancing with another lender for a 20-year home loan with a lower interest rate of 5.25%. They also consider increasing the loan amount to $390,000 and adding an extra $10,000 to help fund a future renovation.

The new home loan, even with the lower interest rate would increase their monthly repayments to $2,627.99. Due to the total interest charges, this would turn their $20,000 holiday and $10,000 for additional purchases into a combined debt of $48,516.

Dan and Emma decide to speak to a financial planner and a mortgage broker before going ahead with the refinance.

Refinancing the right way

If you're thinking of switching lenders to fund a holiday, make sure you only borrow the amount that you need for the trip. For instance, in the case study above, if Dan and Emma started a repayment schedule and borrowed only the amount they needed for the trip (and didn't get tempted to borrow extra for the renovation), then the refinance could have made financial sense.

If they refinanced to $380,000 at 5.25% for 20 years, this would make their repayments $2,560.61 a month - just over $100 more than their regular repayments.

At 5.25% for 20 years the $20,000 amount would cost $12,344.52 in interest with lower monthly repayments of $134.77.

If Dan and Emma had borrowed the $20,000 at personal loan rates of say 14.5% over five years this would cost them $8,234 in interest, with repayments of $471 a month.

If Dan and Emma added this $471 a month to their loan repayments, this would mean it would take them four years to pay off this amount and would cost them $2,105.05 in interest.

$471 a month is a lot of money, especially if they are already paying a mortgage.

Say they instead added approximately $300 onto their loan per month ($75 a week), this would add only $3,780.04 in interest to the loan and would take the couple a touch under seven years to pay off.

What to watch out for

Keep in mind this example doesn't include the property value of Dan and Emma's home, so the important role equity has in refinancing shouldn't be overlooked.

It's important to note that some lenders will automatically set your new refinanced loan to a new 25 or 30 year loan. If you've paid your loan down then you may want to consider the effect this will have on the overall interest you'll pay.

Watch the video below by Heidi Armstrong of State Custodians Mortgage Company to find out more.

Refinancing home loan options

Rates last updated February 24th, 2017
$
Loan purpose
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Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.74% 4.12% $0 $395 p.a. 95% Go to site More info
HSBC Home Value Loan - Resident Owner Occupier only
Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.
3.75% 3.77% $0 $0 p.a. 90% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.59% 4.42% $0 $375 p.a. 85% Go to site More info
Beyond Bank Low Rate Special Home Loan
A special low variable rate for Owner Occupier with 100% offset account and no application or ongoing fees.
3.73% 3.73% $0 $0 p.a. 70% Go to site More info
Switzer Home Loan
No upfront or ongoing fees and a competitive variable rate for owner occupiers.
3.89% 3.89% $0 $0 p.a. 90% Go to site More info
Auswide Bank Home Loan Plus with Freedom Package - Special Package Discount LVR <= 90% (Owner Occupier) P&I
A high maximum LVR home loan with redraw facility and additional payments.
3.79% 4.18% $0 $395 p.a. 90% Go to site More info
CUA Fresh Start Basic Variable Home Loan - Owner Occupier
A basic mortgage with flexible repayments options.
3.89% 3.94% $600 $0 p.a. 90% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier Special Rate)
A limited time 2 year fixed rate for owner occupiers. Conditions apply.
3.89% 4.79% $0 $0 p.a. 95% Go to site More info
Bank Australia Basic Home Loan - Variable (Owner Occupier)
A competitive variable that allows borrowers to borrow a minimum of $100,000 with a $0 ongoing fee.
3.79% 3.83% $0 $0 p.a. 80% Go to site More info
ING  DIRECT Orange Advantage Loan - $150,000+ (LVR <= 80% Owner Occupier)
Pay no annual fee for the first year with this packaged variable rate home loan with offset.
3.89% 4.11% $0 $199 p.a. 80% Go to site More info
3.85% 4.26% $0 $395 p.a. 80% Go to site More info
IMB Budget Home Loan - LVR <=90% (Owner Occupier)
A competitive budget rate without any unwanted bells and whistles.
3.87% 3.92% $445 $0 p.a. 90% Go to site More info
CUA Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
A fixed home loan with no ongoing fees and flexible repayments options.
3.84% 4.59% $600 $0 p.a. 95% Go to site More info
Australian Unity Kick Starter Home Loan
$0 ongoing service fees, maximum 80% LVR and a linked transaction account.
3.79% 3.82% $600 $0 p.a. 80% Go to site More info
3.94% 4.33% $0 $395 p.a. 90% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate)
A limited time fixed rate home loan with extra repayment abilities. Conditions apply.
3.99% 4.73% $0 $0 p.a. 95% Go to site More info
Bank Australia Premium Home Loan Package - 2 Year Fixed (Owner Occupier) LVR < 80%
A discounted 2 year fixed rate loan with high maximum LVR and no application fee.
3.69% 4.31% $0 $350 p.a. 95% Go to site More info
ME Flexible Home Loan Fixed - 3 Year Fixed Rate (Owner Occupier)
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
4.09% 4.80% $0 $0 p.a. 95% Go to site More info
Bank Australia Premium Home Loan Package - LVR<=80% $700k + (Owner Occupier)
Enjoy the discounted interest rate with redraw facility and no ongoing fees.
3.82% 4.17% $595 $350 p.a. 95% Go to site More info
Greater Bank Great Rate Home Loan - Discounted Variable ($150K+ Owner Occupier)
A competitive rate with redraw facility. NSW, QLD and ACT residents only.
3.89% 3.89% $0 $0 p.a. 85% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Owner Occupier)
Enjoy a low interest rate and borrow up to 95% (with LMI) of your home value.
4.49% 4.90% $0 $0 p.a. 95% Go to site More info
Australian Unity Health, Wealth and Happiness Package - (Owner Occupier)
Get a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
4.05% 4.08% $600 $0 p.a. 90% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier)
Get a short term fixed rate for that investment property with no application or ongoing fees.
4.49% 4.95% $0 $0 p.a. 95% Go to site More info
IMB Essential Home Loan - LVR <=90% (Owner Occupier)
100% offset account, unrestricted additional repayments and no monthly account keeping fees
4.09% 4.09% $0 $0 p.a. 90% Go to site More info
ANZ Simplicity PLUS Home Loan - Special Offer (Owner Occupier)
Enjoy a home loan with no aplication fee or ongoing fee.
4.03% 4.07% $0 $0 p.a. 95% Enquire now
3.88% 3.89% $600 $0 p.a. 90% Enquire now
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed (Owner Occupier) P&I
A package home loan with fee free extra repayments available during the fixed term.
3.99% 5.00% $0 $395 p.a. 95% Enquire now
St.George Fixed Rate Advantage Package -  2 Year Fixed Rate (Owner Occupier, P&I)
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cash back available for refinancers, conditions apply.
3.99% 5.04% $0 $395 p.a. 95% Enquire now
Westpac Fixed Options Home Loan Premier Advantage Package - 2 Years
A low interest rate home loan and competitive two year fixed rate.
4.19% 5.32% $0 $395 p.a. 95% Enquire now
St.George Basic Home Loan - Promotional Rate (Owner Occupier, P&I)
A no frills loan with a competitive rate and a maximum LVR of 95%.
4.08% 4.09% $0 $0 p.a. 95% Enquire now
Westpac Flexi First Option Home Loan - 3 Years Introductory Special Offer (New Owner Occupier, P&I)
A limited time deal for new owner occupiers. Advertised rate includes 1.03%p.a. discount for the first two years.
3.99% 4.37% $0 $0 p.a. 95% Enquire now

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Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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Related Posts

HSBC Home Value Loan - Resident Owner Occupier only

Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤85% ($150K+ Owner Occupier)

Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier)

Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.

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